Money Talk Podcast, Friday Feb. 2, 2018

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Week in Review (Jan. 29-Feb. 2, 2018)

SIGNIFICANT ECONOMIC INDICATORS & REPORTS

Monday

Consumer spending, which accounts for about 70% of U.S. economic activity, rose 0.4% in December, apace with the gain in personal income, according to the Bureau of Economic Analysis. Adjusted for inflation, consumer spending rose 2.7% on average in 2017, the same as 2016, compared to an average of 2.4% since 2000. Spending came at the expense of saving, with the personal saving rate for 2017 dipping to 3.4% of disposable personal income, down from 4.9% in 2016, 6.1% in 2015 and the lowest since 2007. Also in the report, the Federal Reserve’s preferred measure of inflation showed a year-to-year gain of 1.5%, still below the central bank’s target of 2%.

Tuesday

A leading indicator of consumer spending, consumer confidence, rose higher than analysts expected in January after falling in December. The Conference Board said consumers felt slightly less upbeat about current economic conditions, but their expectations for coming months heightened. The business research group said its monthly index signals a “solid pace of growth” for the economy in the months ahead.

Home prices continued to climb at more than triple the rate of overall inflation in November, according to the S&P CoreLogic Case-Shiller home price index. The 20-city composite index rose 6.4% from November 2016, exceeding 5% for the 28^th month in a row. A housing economist who oversees the data cited an ongoing dearth of houses for sale, noting that the average number of new single-family homes built per year has been about 632,000 since 2010, down from 698,000 during the recession and more than 1 million from 1959 to 2000.

Wednesday

Echoing concerns about housing supply, the National Association of Realtors referred to “record low” inventories pushing prices beyond affordability for more homebuyers, especially on the low end. The trade association’s pending home sales index rose 0.5% in December, the third rise in a row. But the group said lack of supply and tax changes providing less incentive for home ownership means existing home sales will rise merely 0.5% in 2018 to 5.54 million homes.

Thursday

Residential projects led construction spending higher in December. The Commerce Department reported that overall spending on construction rose at an annual pace of $1.25 trillion, up 0.7% from the November pace and 2.6% ahead of December 2016. Year-to-year residential construction spending grew 6.2%, led by single-family housing.

Manufacturing growth slowed in January but remained at a robust pace in key components, according to the Institute for Supply Management. The 17^th consecutive month of expansion for the sector included most manufacturing sectors, with 14 of 18 industries reporting growth. Most parts of the trade group’s index kept growing but at a slower pace. New orders and production stayed at relatively strong levels.

Amid concern over years of flagging worker productivity, the Bureau of Labor Statistics reported another decline in the fourth quarter of 2017. Output rose at an annual rate of 3.2% October through December while hours worked rose 3.3%, resulting in a productivity loss of 0.1%. Year-to-year, productivity rose 1.1%, vs. the average productivity growth since World War II of about 2% a year. The preliminary estimate showed inflation-adjusted worker compensation falling 1.8% in 2017, the fifth decline in seven years.

The moving four-week average for initial unemployment claims fell for the third week in a row, dropping to the lowest average since a 44-year low in November. Labor Department data show jobless claims 34% below the 50-year average, a persistent sign of employers’ reluctance to let workers go, which should fuel confidence in consumer spending.

After a fourth-quarter boost from hurricane replacements, motor vehicle sales fell in January. Cars and trucks sold at an annual rate of 17.2 million vehicles, 3.9% behind December’s pace and 1.6% below the level in January 2017. According to statistics from the trade group Autodata Corp., imported trucks continued to have better sales trends than U.S.-made vehicles. In fact, year-to-year, trucks gained in sales.

Friday

Employers added 200,00 more jobs in January for a record 88^th consecutive month of net gains. The Bureau of Labor Statistics said the unemployment rate stayed at 4.1% for the fourth month in a row, the lowest since 2000. Average hourly wages rose 2.9% from the year before, the biggest increase since the last month of the recession. Although economists warn not to divine too much from one month’s report of data, the wage increase could be an early sign that worker pay is starting to benefit more from tight hiring markets.

The Commerce Department said factory orders rose in December for the sixth time in seven months. Excluding the volatile transportation industry, orders rose 6.3% for the year. Plans for non-defense capital goods excluding aircraft, a proxy for business investments, declined for the first time in six months but rose 5.2% for 2017, the first significant gain since 2012.

The University of Michigan reported that its consumer sentiment index declined slightly in January with an increase in expectations and a dip in historically high attitudes toward current conditions. Overall, the gauge has been steadily elevated for more than a year. Survey respondents cited stock market gains and new tax changes to support their optimism. A Michigan economist said the index suggests a healthy 2.8% rise in consumer spending in 2018.

Where the Markets Closed for the Week

Nasdaq – 7,241, down 265 points or 3.5%
Standard & Poor’s 500 – 2,762, down 111 points or 3.9%
10-year U.S. Treasury Note – 2.84%, up 0.18 point
Dow Jones Industrial– 25,521, down 1,096 points or 4.1%

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